3M, Infor in legal battle over millions in software fees

In a case that hinges on interpretations of software contract language and the respective rights of customers and vendors when it comes to third-party support organizations, 3M wants a court to declare that it doesn't owe Infor millions of dollars in fees.

For more than a decade, 3M has used Infor's BCPS and Infinium software, which is "indispensable" to its operations domestically and abroad, according to a complaint 3M filed last week in U.S. District Court for the District of Minnesota.

The relationship stems from a contract 3M initially signed in 1997 with SSA Global, which Infor later acquired, according to the suit. That pact gave 3M "a perpetual, personal, nontransferable and non-exclusive right and license to use the software," it adds.

Over time, 3M has gained the right to 8,000 license seats, most recently adding 1,000 in December 2009 at a cost of US$1.5 million, it states. Only 7,000 of the seats are currently in use.

The deal also includes annual maintenance payments to Infor, which currently total about $1 million per year, for updates, upgrades and technical support, according to the suit. However, the contract also specified that other necessary services wouldn't be provided by Infor, and that 3M was able to hire other companies to fulfill those needs, it adds.

But the agreement also contains a provision that bars 3M from giving access to the software "(without SSA Global's prior written consent) to any service bureau or other agent or third party whose primary function shall be to provide [3M] with day-to-day management and support responsibility of the software."

Meanwhile, the software has been highly customized for 3M's needs, with only about half of the code used at 3M "original to Infor," the suit states. Because of this, Infor employees are unable to provide much of the needed support, according to 3M.

3M signed a services agreement with Cognizant in November 2009 to help it manage the software, the suit states.

Infor "has long been aware" of 3M's relationship with Cognizant and in fact "expressly approved of Cognizant as a third-party provider for 3M, thereby lulling 3M into a false sense of security with respect to its relationship with Cognizant," according to the suit.

At one point, Infor sent 3M a "proposed use and confidentiality agreement" for Cognizant to sign, it adds. Cognizant kept the document "for many months without comment," and ultimately never signed it because "Infor had not properly defined Cognizant's duties" regarding the software.

In March of this year, an Infor contact told 3M he considered the Cognizant agreement "stale," but otherwise and since has "said nothing to indicate any objection or concern with Cognizant gaining access to the software," 3M said in the filing.

This year, Infor conducted an audit of 3M's software usage. In the process, Infor asked whether 3M had "outsourced the day-to-day operation and/or maintenance of the Infor software," the suit adds. 3M responded that it had, and identified Cognizant as the provider.

"The audit did not ask whether 3M had outsourced management of the software," it adds. "In fact, 3M has never outsourced management of the software."

In July, Infor sent 3M a letter claiming it had breached a confidentiality clause in the companies' contract due to Cognizant's involvement, and demanded $20,923,526 in exchange for giving Cognizant access rights, according to the suit. Infor later dropped that amount to between $17 and $18 million, it adds.

Earlier this month, 3M dissolved its contract with Cognizant "in an effort to maintain its relationship with Infor," believing that based on "previous representations by Infor" doing so would resolve the companies' differences.

Yet on Nov. 10, Infor "made yet another demand that 3M pay fees based on an unexplained 'analysis' for 'back usage' by Cognizant," it adds. In this instance, Infor asked for about $7.8 million but said it was willing to discount that amount to roughly $5.9 million, according to the suit.

3M is seeking a declaration that Cognizant "did not perform the 'primary function' of 'day-to-day management and support responsibility of the software,'" and therefore 3M is not in breach of its contract with Infor, it states.

The conglomerate also wants a declaration protecting it even if Cognizant did perform such activities, as well as attorneys' fees and other relief.

But the case could end up being settled before trial.

"Infor has a reputation for service and support excellence, and 3M is a valued Infor customer," said Infor spokesman Dan Barnhardt in a statement. "We are currently working with 3M to bring this matter to a speedy and satisfactory resolution. All software agreements necessarily restrict access to and modification of source code by third parties to encourage and protect substantial investments in continuous innovation."

3M's complaint does not mention source code modification. Attorneys for 3M did not immediately respond to a request for comment on Monday.

While it's impossible to know exactly what transpired between the companies on this front without more information, vendors have no legal claim or control over any customizations created by a customer that don't touch the underlying source code, said analyst Ray Wang, CEO of Constellation Research.

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